Thursday, October 13, 2011

What is 'Forced Pooling?' What are your options?

Pooling Definitions in Colorado

Pooling is a technique used by oil and gas development companies to organize an oil or gas field. Colorado Revised Statutes 34-60-116 (6) states:

When two or more separately owned tracts are embraced within a drilling unit, or when there are separately owned interests in all or a part of the drilling unit, then persons owning such interests may pool their interests for the development and operation of the drilling unit.

It is sometimes the case that not all interests within a drilling unit are in agreement about development. In that case, a party interested in development can make an application to the Colorado Oil and Gas Conservation Commission (COGCC) for forced or involuntary pooling. If forced pooling is approved, then the drilling unit is developed with or without the consent of all mineral owners. Mineral owners not participating in the development in any manner are considered non-consenting owners.
Legal Prerequisites for Pooling

There are several requirements that must be met before COGCC will order forced pooling. First, the land to be force pooled must have been spaced (see Info Sheet #11, Spacing, for more information.) Second, all mineral owners must have received a reasonable offer to lease their interests. Third, the oil and gas company must notify all mineral owners within seven days after the application for forced pooling has been submitted to COGCC. And finally, COGCC must notify all affected mineral owners 20 days in advance of a hearing.

COGCC typically does not like to force pooling. They would prefer that private parties work out an agreement. Forced pooling requires COGCC to adjudicate property rights, which they would prefer not to do unless necessary.

What Are My Options Under Forced Pooling?A mineral owner has five options in the context of forced pooling. They can:
1. Lease their mineral interest.
2. Sell their mineral interest.
3. Participate materially in the development of the gas field.
4. Be a non-consenting owner.
5. Protest forced pooling.

In the first four cases, it is likely that there will be positive financial returns. Even a non-consenting owner receives royalties under state law.1 The size and nature of those returns will vary, however. The difference in these various options may be the degree to which the surface owner can influence the impacts on the surface. An attorney will probably be needed to negotiate minimal impacts on the surface.

If you are force pooled and you are a non-consenting owner, then it is possible that wells may be drilled on your land. It may therefore be in your best interest, if you do not want disruptions to your land and you do not wish to lease your mineral rights, to protest forced pooling if you have proper grounds for doing so.

Protesting forced poolingThere are a number of possible grounds for filing a protest about forced pooling, including failure to meet the prerequisites described above. In addition, a protest may be filed if the gas company (the applicant) does not have any interest in the drilling unit in which you have an interest. To determine if you can file this sort of protest, you first need to figure out which one of the following descriptions fits your situation:

1. Own partial mineral interest and the entire surface interest in part of a drilling unit
First you need to know who owns the remaining mineral interest under your land and find out what option they have pursued for their interest. If they are a non-consenting owner, then you may want to file a joint protest with them asking for wells to be drilled off your property, on the surface of the leased mineral owners. You may also want to find out who owns the rest of the minerals within your drilling unit. If they are also non-consenting owners, then a joint protest from all of you may disallow drilling and extraction from your drilling unit.

2. Own 100% mineral interest and the entire surface interest in part of a drilling unit
First you need to find out who owns the rest of the minerals within your drilling unit. Next you need to find out what option they have pursued for their interest. If they are non-consenting owners, then a joint protest from all of you may disallow drilling and extraction from your drilling unit. Otherwise, it may be in your best interest to lease your mineral interests to strengthen your position in negotiating a surface use agreement. Consulting an attorney is advisable.

3. Own 100% mineral interest and the entire surface interest in a complete drilling unit
If you do not wish minerals to be extracted from your property, then you are a non-consenting owner. You should probably file a protest stating that the gas company has no interest in the drilling unit.

4. No mineral interest, own surface interest, partial or complete drilling unit.
If you don’t own any mineral interest (they have been severed from the surface), then you need to understand who does own the minerals and what option they have pursued for their interest. If they are a non-consenting owner, then you may want to file a joint protest with them asking for wells to be drilled off your property, on the surface of the leased mineral owners. If the minerals "under" you have been leased, then you probably don’t have grounds for protesting pooling because of the reasonable access provision of state law. Instead, you should consider drawing up a surface use agreement with the gas company.

*please refer to cogcc for any changes that may have occured

PLEASE NOTE: WELD COUNTY

Request for an order to pool all nonconsenting interests in the approximate 640-acre drilling and spacing unit established for Section 9, Township 6 North, Range 62 West, 6th P.M., effective as of the spud date of the planned Degenhart #6-62-9-1H Well.

BEFORE THE OIL AND GAS CONSERVATION COMMISSION OF THE STATE OF COLORADO IN THE MATTER OF THE PROMULGATION AND ESTABLISHMENT OF FIELD RULES TO GOVERN OPERATIONS IN AN UNNAMED FIELD, WELD COUNTY, COLORADO

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CAUSE NO. 535

DOCKET NO. 1105-UP-28

NOTICE OF HEARING

TO ALL INTERESTED PARTIES AND TO WHOM IT MAY CONCERN:

On April 4, 2011, the Commission, acting pursuant to an application filed by Chesapeake Exploration, LLC (“Chesapeake” or “Applicant”) on February 2, 2011, will consider establishing an approximate 640-acre drilling and spacing unit, with the authority to drill one horizontal well within the unit, for Section 9, Township 6 North, Range 62 West, 6th P.M., for the production of oil, gas and associated hydrocarbons from the Niobrara Formation.

On March 14, 2011, Chesapeake, by its attorneys, filed with the Commission a verified application for an order to pool all nonconsenting interests in the approximate 640-acre drilling and spacing unit which may be established for the below-described lands, for the development and operation of the Niobrara Formation, effective as of the spud date of the planned Degenhart #6-62-9-1H Well:

Township 6 North, Range 62 West, 6th P.M.

Section 9: All

NOTICE IS HEREBY GIVEN, that the Oil and Gas Conservation Commission of the State of Colorado, pursuant to the above, has scheduled the above-entitled matter for hearing on:

Date:

Monday, May 16, 2011

Tuesday, May 17, 2011

Time:

9:00 a.m.

Place:

Suite 801, The Chancery Building

1120 Lincoln Street

Denver, Colorado 80203

In accordance with the Americans with Disabilities Act, if any party requires special accommodations as a result of a disability for this hearing, please contact Margaret Humecki at (303) 894-2100 ext. 5139, prior to the hearing and arrangements will be made.

Pursuant to said hearing in the above-entitled matter at the time and place aforesaid, or at any adjourned meeting, the Commission will enter such orders as it deems appropriate to protect the health, safety and welfare of the public and to prevent the waste of oil and gas, either or both, in the operations of said field, and to carry out the purposes of the statute.

In accordance with Rule 509., any interested party desiring to protest the granting of the application or to intervene on the application should file with the Commission a written protest or intervention no later than May 2, 2011, briefly stating the basis of the protest or intervention. Such interested party shall, at the same time, serve a copy of the protest or intervention to the person filing the application. An original and 13 copies shall be filed with the Commission. Anyone who files a protest or intervention must be able to participate in a prehearing conference during the week of May 2, 2011. Pursuant to Rule 503.g., if a party who has received notice under Rule 503.b. wishes to receive further pleadings in the above-referenced matter, that party must file a protest or intervention in accordance with these rules. In accordance with the practices of the Commission, should no protests or interventions be filed in this matter by May 2, 2011, the Applicant may request that an administrative hearing be scheduled during the week of May 2, 2011. In the alternative, pursuant to Rule 511., if the matter is uncontested, the applicant may request, and the Director may recommend approval on the basis of the merits of the verified application and the supporting exhibits.

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